The Road to Economic Nirvana
The Road to Economic Nirvana:
The modern market economy has been and still is a useful tool for the growth and expansion of the world’s economy. The economy defined in this case is used purely as it relates to the generation and application of a monetary process and ways of attaching value to the efforts of creating material artefacts, things, or providing a service, or process and the use to which these things can be put too, at a fancied cost.
The concept of the ‘economy’ and the models used to define it, is a comparative recent creation built up over some five hundred years but it is only in the last 100 has it acquired its mythical qualities of being a indefinable independent creature external to the influences of wo/man to the extent that it has taken on a power and aspects of its own over the cause and effects of it. The ‘economy’ and the elements that define its structure and mechanics are pontificated over with the aim to achieve supremacy of a reasoned hypothesis about which is the most favourable model to believe in or is convincingly successful. This discussion constantly forms the disputed nexus between the benefits of having or not having a managed or unmanaged process of economics and whether it should be driven by social considerations or driven by the meritocracy of market conditions.
In economics, wealth refers to the value of assets owned minus the value of liabilities owed at a point in time. Wealth refers also to monetary value that exceeds needs, producing surplus to be held or invested in generating / acquiring resources or adding value to the resourse that are in demand to produce more wealth from market conditions. It is a term (wealth) that may be divisive and contextual as it is imposed upon some, rejected and accepted by some and is a concept that is bandied about in economics from the point of luxury. The implication of the term may differ by those not affected by the actual effects of the applied positive or negative description attached to it. It is a wholly relative term but either view individually or ‘corporately’ it can be defined to a base level of having or not having the resources to survive much beyond a subsistence level.
It has to be realised though that the market economy of today that supports wealth has only been possible with the creation of money as a substitute for the attached limited defined intrinsic value of things in an expanding and expandable market environment. Markets controlled and driven by a few privileged countries that exploited others. Such exploitation, in attempting an interpretation of the term today, in a less pejorative proscriptive way, has been suggested is not and should not be seen as a wholly negative mistreatment of the exploited, albeit using selective assessment but it is now argued perversely, forms part of the expansive learning development of those that may be exploited! Never the less in the past the unequal attachment of the value of things that may not have had a monetary assessment given to them could be distorted to benefit one party over another and so while one party does not know the true worth of the ‘marketability’ of things, one party is deprived of the full benefits of the ‘economy’ transaction. One cannot fall back on the “willing buyer willing seller” defence for it must presuppose that both parties have full access to the guiding factors that are operating in the market environment that signalled value. Such value today is generally marked with a monetary importance and can be assigned to almost anything but such value might also not really reflect true worth; however those participants that may not have originally had a monetary system but had relied on commodity trade / barter, may have reflected more accurately and fairly the worth of things, both to the exchanged and exchangers.
For now, the understanding of an economy has been accepted by many economists as a logical development of trade markets but based on the monetary value of products, producer, process, supply and demand and they have attempted to place it in a created ‘scientific’ model of how economies work. The market economy, because it has been so successful against any other form of organised system of trading internally or external, has to some extent superseded the driving interrelation of humans relationships that previously endorsed say a barter system. The ‘market’ is now largely devoid of active human control other than as a player in a gamble of how it moves, it has become a thing in its own right that moves with the disputable law of supply and demand, innate with only one factor the one attribute that economist accept lay within it, the ‘need’ attribute that is generally inherent in the human participants with the drive to satisfy ones own desires above others which makes the economic system work. It is also taken as fact that the market is described as a perfect system that finds it's owns equilibrium to serve the best needs of a majority of the people efficiently and any interference with the workings of it are ultimately detrimental to it and the people it is supposed to serve. This situation of the market being an efficient system of self regulation that does not require the machination of a fallible human hand, a hand which may often be perverted and open to misguided qualitive judgements, is a view that underscores the markets best interest however this best interest is only applicable to perhaps a third of the world’s most privileged, the rich populations. The majority of the world’s population are ignored, excluded, or exploited to serve the needs of this 'perfect' market system.
So far as the west is concerned this system can continue for as long as it has the drive, opportunity, resources, expertise and power to use it for its own best needs. No doubt that just looking at the west and the development that open market trading has brought, may not have become any more successful under a straight exchange / barter systems by the sole reliance in the parity transfer of hard assets resources. However it is a complete illusion and self deceptive to think that this current economy market system can continue for ever. It will not. The seeds of its own destruction have already been set and unless the world is to be plunged into an economic abyss, it must take steps to instil a real sense of the value of commodities for its extraction, utilisation, reclamation and inculcate the market with survival self interest to manage the excesses of the ‘market’ and the freedom it is given.
The market, according to most economists, is a perfect system where it responds to the ‘law’ of supply and demand which rights value and cost. It has been modelled in mathematical terms operationally in such a way that the model permeates near all of governmental political philosophy, strategies, and feeds into policies of social systems. It excludes all elements of unquantifiable human contributions, emotion, values, ethics and altruistic motives. It assumes that the individuals act first in their own best interest, are self serving and acts in a rational way to meet their own needs first. Extrapolated from this stance is the argument that from this rational process the best scenarios come about that eventually provides the most efficient form of production and distribution for all resources and lift the ability of the supporting infrastructures / people to a higher value of achievement. Complicit in this accepted notion that all people act in their own selfish best interest and like organisations, are to be only limited by the constraints of minimal order imposed on them to serve the interest (incidentally) of the whole of a society, is the rolling concept of laissez faire economics. All higher ideals of sacrifice for the betterment of society as a whole, its people and culture etc are not taken into account in the created economic models, indeed they have no part to play in the science of economics other than as the recipient of its beneficence.
If market forces and the economics that sustain it were such a perfect system that has been promoted by many economists, why is it that it relies on exploitation to survive? Why is it that on many occasions the market has demanded the intervention of state power to supports it? Why is it that it only works well (for some) when it has controlling influence to dictates its own terms? Why does the model only work in an expansionist opportunist phase?
Using the analogy of a closed economy system, the market economy condition would perhaps eventually operate to the benefit of a few and to the detriment of the many, the eventually outcome must be degradation to upheaval and chaos to reconstitute the internal forces for a new fluid state. There is an argument by economist that says an economy can grow indefinitely as new materials and are created and new technologies developed that ‘create’ new market opportunities. This is assuming that there will always be a buyer and seller with sufficient energy and resources to generate the material consumables for transactions. A wholly closed system does not allow this as entropy must eventually cause a flat line economic compression. This assume that there is no forceful restrictions that seek to maintain a social status quo controlled by the powerful, which of course goes again the whole ‘philosophy’ of the freedom of market forces.
To make the scientific approach of market economies work there has to be many human factors that are ignored and in this artifice, subtly illusions are created that over look the complete fallibility of economics. The prime illusion is the belief that the market economy is the only one that can work and the price mechanism is the most appropriate operant to signal value / demand / supply and modify production. The strength of this stance is laid on the fact that no other system of economic trading has survived or can offer the flexibility to deal with the complexity of a modern money economy that allows the inherent personal drive to maximise gain and prosper - not communism, socialism, dictatorship, nor a barter system. Capitalism upon which the market economy relies is wholly dependent on the amount of power an individual, group or nation can control with the aim of enriching its self. In this, these power factors of necessity have to be in the hands of a inherently few in number and ultimate relies in the lassitude provided by the majority to acquiesce to the power, (willingly given or not)
The proponents of the freedom of market economies point to the stagnation evidence in countries that did not embrace the western philosophy of economics and one example used has been the competition between the west’s views or organised liberal state control of their economies and communism, often using the command economy system as used by USSR. It is not an equitable argument in so far as the mechanisms for controlling economics were devised, supported and operational in the ‘west’ by the use of central power, without civil breakdowns in ‘economically’ expanding formative years and promoted by the civil processes built up over a long period of time. Time which was sufficiently long enough to create the infrastructure in which it (economics) could thrive and lead to the now promoted lasisez fair desires of some today. This is unlike the USSR / Russia which originally had a command and control economy from tsars to communist until its glasnost / perestroika phase, which it is argued failed as a model until it was subsequently persuaded to relinquish its control of state assets to the obvious detriment of its nascent open economy and disastrously its people. Fortunately Russia has belatedly seen this enforced economic freedom as a recipe for instability and has started to regain a grip on the economic generators. The failure to move to a complete western model of lasisez faire style of economics was mainly due to the internal lack of long standing legitimate law authority, the lack of maturity of market economical operating factors that had little historic foundation to build on and resulting in robber oligarchs.
However contrary to the above, China a communist controlled country has allowed a generous amount of market forces activity both internal and with the external investors but retains very tight control of the overall direction in which it moves and is restraining the excessive of it. So far its population has very little say in the speed or direction its government and legislators allow in pursuing growth, yet there are clear indications that this controlled approach, although not liberal, socialist or at the moment hard communism, is also working for an increased yet small part of its civil society albeit that the majority are still not allowed western liberal freedom. This is not the economic environment of the west, it is not the capitalism created from empire or early industrial might, yet it is conclusively successful exploitation of a market condition; for despite its antithesis to western methods, huge investment is flowing into china to take advantage of the massive production ability built on cheap labour that is so effectively now undermining and supporting western economies. It cannot be said to have wholly adopted the lasisez fair approach so actively promoted by element of the western economies but has a watch and wait approach to its economic success so long as it serves the ‘country’s’ needs.
In attempting to understand the power of a country and how it achieves it status, economy philosophers have looked at the way nations have developed and in this they have initially considered the power a country gains from trade and maximising that trade for its own benefit. Trade that relied on the acquired material wealth and the labour at its disposal to create more opportunity of resources that may have been assembled on the creative use of forceful power. There can be little doubt that the major western economies of today used their past power of force to achieve exploitation, penetration and expansive opportunities that formed the building block of their current success, success that has so far reach to the 21st century. Apart from the developed technology achievements that offered the mechanisms to expand and reach out for acquisitions like land and materials, one commodity that was a formative part of modern economics was gold. Although gold was a yardstick measure of attaching value to things and was easily transferable, its scarcity created its intrinsic value and it was eventually placed in coinage for greater use in population trade fluidity onto which notable and accepted value was placed for the exchange of the worth of things. This was a major step from a barter system and everything could then be priced although their value could be manipulated. From this development of a monetary economy, a number of people started to lay down why and how such a systems works in an effort to better understand, seek advantage from it and dubiously plan the effectiveness of the effervescent market economies.
There are a number of people that influenced the development of the modern understanding of economics and have generated an impact on today’s continuing discussion and influencing practices. The defining elements of interpreting economics might be placed at the door of these people, people that spanned the birth of the industrial revolutions of the 17th to 21st centauries.
Adam Smith 1723/1790
John M Keynes 1843/1943
Fredrich A V Hayek 1899/1992
Milton Friedman 1912/2006
Adam Smith 1723/1790
He was an affluent Scot, who provided the first attempt at systematically studying the historical development of industry and commerce in Europe and did a constant attack on the belief of mercantilism (gold standard) free trade. He thought economics was fundamentally a factor that appealed to the baser values of wo/man in order to work, i.e. selfishness but in the ‘Wealth of Nations’ circa 1776 saw that there was an invisible hand that directed it. He developed the idea of division of labour for productivity, the invisible hand of the market, natural price of things populated with the human motive of selfishness and being greedy. But such traits he thought must also include a measure of external positive self interest for survivable within the society. He is often thought of as the architect of the laissez faire economics and gamesmanship as in the prisoners dilemma later developed by John Nash which works only where there is a large seemingly free reward with little or no penalty to deceive and ‘win’ over the other party. This philosophy came to fruition from cold war ‘gamesmanship’ that fed into the philosophical management of the ‘cold war’ and ‘mad’. But when tested on ‘normal people’ the plot did not work, in each case of testing, participants unknowingly agreed to trust the other and work together to gain an aim. The psychotic plotting that gives rise to game theory may only apply to strange created scenarios, applicable to a self selected pre obsessed number of people and not to the majority of normal people interactions so possibly undermining smith’s selfishness and greed beliefs. He is now celebrated on the English £20 note, so we know which way G. Brown dresses.
John M Keynes 1843/1943
A British economist who developed the interventionist idea of economics later called Keynesian economics, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recession and depression boom to bust cycles. His work led to macroeconomics and countered the idea that free open market led to the best outcome for all and did not guaranteed full employment as laid out in his General Theory of Employment, Interest & Money. His argument, of prices and wages as perfectly flexible terms established that the interaction of aggregate demand and aggregate supply may lead to stable unemployment equilibria. His work on employment went against the idea that the market ultimately settles at a state of full employment - a central tenet of classical economists. Instead he argued that there exists a variety of economic states, a full employment equilibrium position being just one of them. In a state of high unemployment and unused production capacity, one can enhance employment & total income by increasing expenditure for consumption or investment i.e. intervention in the market condition to direct a change in the market condition. A process that has been tried effectively after the last war by the usa and gb. GB had to nationalise major industries after the war to get them productive and the USA invested billions in the space and defense program to avoid recession.
Fredrich A V Hayek 1899/1992
Austrian- British, he came to prominence circa 1935. And was much admired by M. Thatcher but he stressed he was not a conservative follower. He was a great critic of collectivism or socialism which he said led to totalitarian states as central powers would ultimately impact on social life as well, this was all laid out in his ‘The Road to Serfdom’ 1944 and he maintained that the role of state should be to uphold law with as little interference a possible in it for the market and individual to operate in; yet to enforce such order as society required that it had created by the unplanned spontaneous order, generated to create markets. For Hayek maintained that not only is society a complex phenomenon, it is therefore quite unlike the simple models studied in the physical sciences, but that each individual making up that complex structure is himself complex and impossible to predict with any accuracy. The problem for any planner of a system be it economic or social order, is that the 'facts' the planner must deal with in order to plan an outcome are not concrete things, but are the relationships and behaviour of individuals themselves, something which nobody can predict in advance. Being scientific in markets is a poor basis for any social 'science' while we might be able to talk about some general patterns of society, “we should never suppose that we can completely predict it.” Hayek viewed the free price system, not as a conscious invention something which is intentionally designed by man, but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Yet he supported the idea that state should be organised around a market order where price sets the pace of change and distribution of resources. All of which sounds just like MT conservative’s right wing policies and her “no such thing as society” and of individualism at all cost but pay your own way, plus selling of state assets which has proved t0 be an expensive mistake.
Milton Friedman 1912/2006
He was a prominent American economist and public intellectual. Friedman was the arch monetarist and promoter of lasisez faire economies which should be free from all state restraints. In his 1962 book Capitalism and Freedom, Friedman advocated practically emasculating the role of government in a free market as a means of creating political and social freedom. He maintained that there is a close and stable link between inflation and the money supply that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy. Friedman was supportive of the state provision of some public goods that the market is not seen as being able to provide. However, he thought that the scope of such goods as being minimal. And, he argues that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly where private competition is prohibited. (Hence the privatisation of state asset by Conservative and Labour) Friedman also proposed a negative income tax to replace the existing welfare system (something labour G, Brown has moved to due) and then opposing a bill to implement it in the USA because it merely supplemented the existing system rather than replaced it. He also suggested having a voucher of substantial size available to all students, and free of excessive regulations. His idea was that vouchers would allow private schools to compete with the public school monopoly. Something that was considered with UK state social support and again an idea that has unintentional damaging consequences when looking at the UK schooling in public vs. private vs. academy vs. parental choice in education. Those with best resources will choose the best, overwhelming availability and leaving the majority least able to deterioration.
Taking the views of the above people; which have been of necessity condensed and which have been instrumental in driving some of the thinking in economics, they and others unnamed belong to a long line of people that have attempted to understand the working of a country’s economy and have laboured to position economics on a quasi scientific footing, one that it does not by any stretch of imagination or perverted logic deserve. This dutiful acceptance in the faith that economics and the law of markets can be interpreted as a science fact has moved politics to step aside from the role that it should undertake to act for the best interest of its entire people. That the economy is now determined by the active promotion of lasisez faire promulgated policies and effectively supported by the states abrogating its interventionist responsibility in the total belief that the market is supreme and that it is ultimately self regulating to respond to the needs of the many by ‘trickle down economics’, is simply a way of letting the devil rip. It is a no win race. As has been demonstrated by a number of assessments the rich have got richer and the poor poorer and they pay a higher portion of tax take.
All countries and their economies have since trading and economic inception had the actual, practical and tacit intervention of the power of the state fundamentally to benefit the few and utilise the energy of the many for it existence. The substance of the existing wealth of nations did not derive from any grand understanding or insight into all market mechanisms, it did not come about from some fortuitously placed ‘manna’ eagerly sort by all; it did not get to the pinnacle it now occupies by governmental power being lasisez faire. Its foundation can only be laid in the early exploitation of others leading to the mechanisation, productive capacity and keeping ahead of the consumptive requirements that can last as long as there is sufficient disposable capital to invest and acquire all that is not generated internally. It did all this in an unsophisticated organic way using a variety of the element that composed different ‘economic models’ that now pervade the ‘science’ of economics
The science of economics may be seen to be flawed in that it relies on historical data to show trends upon which economic facts are laid and best guesses made to model future progress. It does not generally allow consideration for insubstantial factors that impact the market assessments so there is:-
No room for honour or trust or altruistic motives.
No recognition of the mind of society acting in a possibly uncoordinated yet constructive accord.
No use of emotive drives in the pursuit of purpose.
Neither active popular social vision nor one pursued by state.
No economic entropy calculation.
No sense of good nationhood of the majority for the lifting of the minority.
Such a narrow self centred view of economics may be detrimental to a society. The solution to the ultimate degradation of society caused by the blind belief in market forces is to redefine the market for what it should be for. The market is not a fixed scientific structure, it is not perfect in operation, it does not always serve the best need of the majority, and it ultimately relies on the aggregate effort and energy of the majority for it to operate. Where it may seem to serve the needs of the majority it is therefore only useful for as long as it forefills and is allowed to fore fill the indeterminate aspiration of the population and is not perverted by hugh inequalities. In this the market has to share the true cost of its acquisition, creation, beneficial effects and replacement so that none are disadvantaged from the pursuit of the sustaining consumables acquired freely within the constraint of good laws. This means that the legitimacy of the state is acting with the authority of the people freely given by some form of notable consensus and is crucial to the operating of an economy so long as it is fair. As it stands just now there is certain hollowness to the power of economies that take the strength of economics as its own justification portrayed by the obvious power and wealth of nations. This power and wealth is evident with the built assets and financial resources they have at their disposal but undermined by the increasing deviant nature of it in which sees financial rewards outstrip the effort required to accumulate it by a small section of a population. If one looks at the underlying pillars of their power one can see that there is a huge segment that do not and will not have a share in the wealth of the nation and increasing find it difficult to acquire any individual wealth to play a part in it. As lasisez faire economic tend to gravitate their resource to those that already have economic power, this divergence will become worse, therein is the manure for the seed to grow in
Economics is not a science and is open to the vagaries of humans’ opportunistic or ethical tendencies. Take the pronouncements of the notable expert on the subject, using their expert opinions it can be argued that despite the abhorrence now vocalised in the excised slave trade, that it was a great justification for the wealth it created for Great Britain, the development of United States and Europe. The application of the developed element of economics from its market forces idea, division of labour, monetarism, supply and demand etc were all factors in the accepted ‘science’ of economics but all ignoring the driving factor of cheap disposable labour. Not much in the way of strong words is evident against one of the prime supporting principle elements of economics, the pliability, availability and cost of labour. The salve trade was an immensely good thing economically for a few people of controlling influences but diabolical in its effect yet no one of substance at the time the science of economic was being thought up raises any strong objection to it or indeed used it as a major building block of their later economic principles. But bear in mind that at the same time the slave trade was operating, in the UK most of its population had no say in the prosecution of the slave trade and as a result of the enclosures acts of 1750-1860 and the much earlier Fruits of the Forest act, many were substantially impoverished being deprived of access to the fruits of the land and many were forced to subjection and fed into the nascent industrial revolution, were they laboured in servitude; a small step up from being a slave. They had no vote, no power, and no resources but were industriously not called slaves, which they were, this is yet a fine distinction that some vigilant reader may object to. Such subjection may have only been mitigated in the fact that they were white, probably Christian / Protestant and indigenous. This use of such a disposable resource made the economics of the wealth generation very profitable.
There can be no freedom of a market economy if one party is subservient to the other by the lack of negotiating power. The accepted economy model and the trading of goods and commodities assumes that both participants benefit from a transaction and the price mechanism signals the level at which a transaction occurs using the fiend off supply and demand so: no demand = no supply = no qualified price, low demand = low supply = moderated price, high demand but low supply = high price. High price simulates supply to extract maximum monetary value eventually leading to supply meeting or exceeding demand and falling price. Some of this depend on the utilitarian value of the commodity and its rarity, manipulation, scarcity and need / perceptive desirability which may change over time or with enforced logistical, social environ pressures. The price mechanism assumes that the real value of a thing being traded is fully covered when in actual fact the purpose is to extort as much benefit from the transaction, more than it is taken in energy and ‘added value’ to acquire, so generating profit. Economist would consistently argue that this element of profit as measured or defined by both parties is derived by both the acquirer and seller however I suggest this only applies where both parties can afford the transaction and continue to develop their acquisition streams, process, deliver and reward, yet in effect one party must eventually be diminished as the resource is consumed and the ability to afford to meet the continuing transaction model is restricted.
As may be seen today, although China and India are the recipients of massive investment from western multination interests attempting to serve their own shareholders best needs by seemingly exploiting the advantages of these countries resources, primarily their manpower or increasingly their imported technical ability and growing their indigenous consumption; the long term effect of this is to eventually undermine their own corporate existence and the economic standing of their own home countries. For in moving out technical ability and investment reduces the internal productive capacity and the ability to earn ‘foreign’ income, in this there must be a slow impoverishment of the disposable resource of the population which reduces the living standards of those county that rely on exports or foreign earnings to afford to buy the imports that are required to maintain them. The initial short term approach to meet this threat is to manipulate interest rates or lower taxes, hoping to stimulate growth and consumer expenditure, reducing state expenditure ‘sweat’ the infrastructure assets and later eventually move to the operation of a command type economy to survive. To some extent this is happening now as there is a chase in the west to be the best friendly face of capitalism by pressing back governmental intervention in economic control and ease the tax ‘burden’ on companies together with a desire to reduce direct personal taxation in favour of indirect disposable income taxation. These steps are matched with increasing difficulty being experienced in the command management of WTO/GATT.
These fiscal steps may boost or maintain economic growth in the medium term but with the reduce capacity to invest in home wealth whilst allowing the economic generating capacity to flow out to the newly rapacious expanding companies in countries that do not (as yet ) carry social infrastructure cost, or may never have to carry it, is not a equal competitive state to be in. The west must eventually lose its superiority if it does not see the need to move beyond the formative state of laissez fair economics and realise that the success of a nation and its wealth relies on moving with the pulse of human endeavours yet create and influence an aspiration for its population to be inclusive in the wealth it has but perhaps devise a different economic supervision.
So the road to Nirvana might be paved with the economic monetary gold but it is set in the uncertainly and unpredictability of narrow human values and vision. The apparent immutability of the market economy and its promiscuous success is not guaranteed to continue. Once the ability to offer something that others want is exhausted or reduced or indeed the ability to pay for desired commodity is constricted, the conditions on which a market can operate become stagnant. At the moment there is a slow out flowing of resources into the ‘developing’ markets that is pursuing productivity and raw commodities for consumables and energy, what is driving this is the continuing demand for high corporate profit sustainability and to feed the demands of the major consumer market; the west. This is fundamentally exploiting the lack of social and environmental infrastructure and using high expendable labour content of the supplying nations.
However no free modern economic culture can survive without repercussions when 35% of its population are clearly disfranchised from participating in the foundation of its social economic structure. As stated before, assume that the world achieves unanimity of economy where a plateau of economic trading is stabilised i.e. as in a closed system, how does the economics of today survive? It can perhaps only go one of two ways, a collapse to a form of controlled chaos or become a wholly managed system of production and distribution. As so far all the accomplishment attached to economic models and the success of the wealth of nations has relied on expansion and exploitation of available resources at a cost that has been beneficial to the users, when the bounty founders with no expansion, what other alternative is there? The probable economic entropy for Europe and the USA is not a survivable option if laissez faire is the sole determinant of current driving economic models.
1.5.07
© Renot 2007
The modern market economy has been and still is a useful tool for the growth and expansion of the world’s economy. The economy defined in this case is used purely as it relates to the generation and application of a monetary process and ways of attaching value to the efforts of creating material artefacts, things, or providing a service, or process and the use to which these things can be put too, at a fancied cost.
The concept of the ‘economy’ and the models used to define it, is a comparative recent creation built up over some five hundred years but it is only in the last 100 has it acquired its mythical qualities of being a indefinable independent creature external to the influences of wo/man to the extent that it has taken on a power and aspects of its own over the cause and effects of it. The ‘economy’ and the elements that define its structure and mechanics are pontificated over with the aim to achieve supremacy of a reasoned hypothesis about which is the most favourable model to believe in or is convincingly successful. This discussion constantly forms the disputed nexus between the benefits of having or not having a managed or unmanaged process of economics and whether it should be driven by social considerations or driven by the meritocracy of market conditions.
In economics, wealth refers to the value of assets owned minus the value of liabilities owed at a point in time. Wealth refers also to monetary value that exceeds needs, producing surplus to be held or invested in generating / acquiring resources or adding value to the resourse that are in demand to produce more wealth from market conditions. It is a term (wealth) that may be divisive and contextual as it is imposed upon some, rejected and accepted by some and is a concept that is bandied about in economics from the point of luxury. The implication of the term may differ by those not affected by the actual effects of the applied positive or negative description attached to it. It is a wholly relative term but either view individually or ‘corporately’ it can be defined to a base level of having or not having the resources to survive much beyond a subsistence level.
It has to be realised though that the market economy of today that supports wealth has only been possible with the creation of money as a substitute for the attached limited defined intrinsic value of things in an expanding and expandable market environment. Markets controlled and driven by a few privileged countries that exploited others. Such exploitation, in attempting an interpretation of the term today, in a less pejorative proscriptive way, has been suggested is not and should not be seen as a wholly negative mistreatment of the exploited, albeit using selective assessment but it is now argued perversely, forms part of the expansive learning development of those that may be exploited! Never the less in the past the unequal attachment of the value of things that may not have had a monetary assessment given to them could be distorted to benefit one party over another and so while one party does not know the true worth of the ‘marketability’ of things, one party is deprived of the full benefits of the ‘economy’ transaction. One cannot fall back on the “willing buyer willing seller” defence for it must presuppose that both parties have full access to the guiding factors that are operating in the market environment that signalled value. Such value today is generally marked with a monetary importance and can be assigned to almost anything but such value might also not really reflect true worth; however those participants that may not have originally had a monetary system but had relied on commodity trade / barter, may have reflected more accurately and fairly the worth of things, both to the exchanged and exchangers.
For now, the understanding of an economy has been accepted by many economists as a logical development of trade markets but based on the monetary value of products, producer, process, supply and demand and they have attempted to place it in a created ‘scientific’ model of how economies work. The market economy, because it has been so successful against any other form of organised system of trading internally or external, has to some extent superseded the driving interrelation of humans relationships that previously endorsed say a barter system. The ‘market’ is now largely devoid of active human control other than as a player in a gamble of how it moves, it has become a thing in its own right that moves with the disputable law of supply and demand, innate with only one factor the one attribute that economist accept lay within it, the ‘need’ attribute that is generally inherent in the human participants with the drive to satisfy ones own desires above others which makes the economic system work. It is also taken as fact that the market is described as a perfect system that finds it's owns equilibrium to serve the best needs of a majority of the people efficiently and any interference with the workings of it are ultimately detrimental to it and the people it is supposed to serve. This situation of the market being an efficient system of self regulation that does not require the machination of a fallible human hand, a hand which may often be perverted and open to misguided qualitive judgements, is a view that underscores the markets best interest however this best interest is only applicable to perhaps a third of the world’s most privileged, the rich populations. The majority of the world’s population are ignored, excluded, or exploited to serve the needs of this 'perfect' market system.
So far as the west is concerned this system can continue for as long as it has the drive, opportunity, resources, expertise and power to use it for its own best needs. No doubt that just looking at the west and the development that open market trading has brought, may not have become any more successful under a straight exchange / barter systems by the sole reliance in the parity transfer of hard assets resources. However it is a complete illusion and self deceptive to think that this current economy market system can continue for ever. It will not. The seeds of its own destruction have already been set and unless the world is to be plunged into an economic abyss, it must take steps to instil a real sense of the value of commodities for its extraction, utilisation, reclamation and inculcate the market with survival self interest to manage the excesses of the ‘market’ and the freedom it is given.
The market, according to most economists, is a perfect system where it responds to the ‘law’ of supply and demand which rights value and cost. It has been modelled in mathematical terms operationally in such a way that the model permeates near all of governmental political philosophy, strategies, and feeds into policies of social systems. It excludes all elements of unquantifiable human contributions, emotion, values, ethics and altruistic motives. It assumes that the individuals act first in their own best interest, are self serving and acts in a rational way to meet their own needs first. Extrapolated from this stance is the argument that from this rational process the best scenarios come about that eventually provides the most efficient form of production and distribution for all resources and lift the ability of the supporting infrastructures / people to a higher value of achievement. Complicit in this accepted notion that all people act in their own selfish best interest and like organisations, are to be only limited by the constraints of minimal order imposed on them to serve the interest (incidentally) of the whole of a society, is the rolling concept of laissez faire economics. All higher ideals of sacrifice for the betterment of society as a whole, its people and culture etc are not taken into account in the created economic models, indeed they have no part to play in the science of economics other than as the recipient of its beneficence.
If market forces and the economics that sustain it were such a perfect system that has been promoted by many economists, why is it that it relies on exploitation to survive? Why is it that on many occasions the market has demanded the intervention of state power to supports it? Why is it that it only works well (for some) when it has controlling influence to dictates its own terms? Why does the model only work in an expansionist opportunist phase?
Using the analogy of a closed economy system, the market economy condition would perhaps eventually operate to the benefit of a few and to the detriment of the many, the eventually outcome must be degradation to upheaval and chaos to reconstitute the internal forces for a new fluid state. There is an argument by economist that says an economy can grow indefinitely as new materials and are created and new technologies developed that ‘create’ new market opportunities. This is assuming that there will always be a buyer and seller with sufficient energy and resources to generate the material consumables for transactions. A wholly closed system does not allow this as entropy must eventually cause a flat line economic compression. This assume that there is no forceful restrictions that seek to maintain a social status quo controlled by the powerful, which of course goes again the whole ‘philosophy’ of the freedom of market forces.
To make the scientific approach of market economies work there has to be many human factors that are ignored and in this artifice, subtly illusions are created that over look the complete fallibility of economics. The prime illusion is the belief that the market economy is the only one that can work and the price mechanism is the most appropriate operant to signal value / demand / supply and modify production. The strength of this stance is laid on the fact that no other system of economic trading has survived or can offer the flexibility to deal with the complexity of a modern money economy that allows the inherent personal drive to maximise gain and prosper - not communism, socialism, dictatorship, nor a barter system. Capitalism upon which the market economy relies is wholly dependent on the amount of power an individual, group or nation can control with the aim of enriching its self. In this, these power factors of necessity have to be in the hands of a inherently few in number and ultimate relies in the lassitude provided by the majority to acquiesce to the power, (willingly given or not)
The proponents of the freedom of market economies point to the stagnation evidence in countries that did not embrace the western philosophy of economics and one example used has been the competition between the west’s views or organised liberal state control of their economies and communism, often using the command economy system as used by USSR. It is not an equitable argument in so far as the mechanisms for controlling economics were devised, supported and operational in the ‘west’ by the use of central power, without civil breakdowns in ‘economically’ expanding formative years and promoted by the civil processes built up over a long period of time. Time which was sufficiently long enough to create the infrastructure in which it (economics) could thrive and lead to the now promoted lasisez fair desires of some today. This is unlike the USSR / Russia which originally had a command and control economy from tsars to communist until its glasnost / perestroika phase, which it is argued failed as a model until it was subsequently persuaded to relinquish its control of state assets to the obvious detriment of its nascent open economy and disastrously its people. Fortunately Russia has belatedly seen this enforced economic freedom as a recipe for instability and has started to regain a grip on the economic generators. The failure to move to a complete western model of lasisez faire style of economics was mainly due to the internal lack of long standing legitimate law authority, the lack of maturity of market economical operating factors that had little historic foundation to build on and resulting in robber oligarchs.
However contrary to the above, China a communist controlled country has allowed a generous amount of market forces activity both internal and with the external investors but retains very tight control of the overall direction in which it moves and is restraining the excessive of it. So far its population has very little say in the speed or direction its government and legislators allow in pursuing growth, yet there are clear indications that this controlled approach, although not liberal, socialist or at the moment hard communism, is also working for an increased yet small part of its civil society albeit that the majority are still not allowed western liberal freedom. This is not the economic environment of the west, it is not the capitalism created from empire or early industrial might, yet it is conclusively successful exploitation of a market condition; for despite its antithesis to western methods, huge investment is flowing into china to take advantage of the massive production ability built on cheap labour that is so effectively now undermining and supporting western economies. It cannot be said to have wholly adopted the lasisez fair approach so actively promoted by element of the western economies but has a watch and wait approach to its economic success so long as it serves the ‘country’s’ needs.
In attempting to understand the power of a country and how it achieves it status, economy philosophers have looked at the way nations have developed and in this they have initially considered the power a country gains from trade and maximising that trade for its own benefit. Trade that relied on the acquired material wealth and the labour at its disposal to create more opportunity of resources that may have been assembled on the creative use of forceful power. There can be little doubt that the major western economies of today used their past power of force to achieve exploitation, penetration and expansive opportunities that formed the building block of their current success, success that has so far reach to the 21st century. Apart from the developed technology achievements that offered the mechanisms to expand and reach out for acquisitions like land and materials, one commodity that was a formative part of modern economics was gold. Although gold was a yardstick measure of attaching value to things and was easily transferable, its scarcity created its intrinsic value and it was eventually placed in coinage for greater use in population trade fluidity onto which notable and accepted value was placed for the exchange of the worth of things. This was a major step from a barter system and everything could then be priced although their value could be manipulated. From this development of a monetary economy, a number of people started to lay down why and how such a systems works in an effort to better understand, seek advantage from it and dubiously plan the effectiveness of the effervescent market economies.
There are a number of people that influenced the development of the modern understanding of economics and have generated an impact on today’s continuing discussion and influencing practices. The defining elements of interpreting economics might be placed at the door of these people, people that spanned the birth of the industrial revolutions of the 17th to 21st centauries.
Adam Smith 1723/1790
John M Keynes 1843/1943
Fredrich A V Hayek 1899/1992
Milton Friedman 1912/2006
Adam Smith 1723/1790
He was an affluent Scot, who provided the first attempt at systematically studying the historical development of industry and commerce in Europe and did a constant attack on the belief of mercantilism (gold standard) free trade. He thought economics was fundamentally a factor that appealed to the baser values of wo/man in order to work, i.e. selfishness but in the ‘Wealth of Nations’ circa 1776 saw that there was an invisible hand that directed it. He developed the idea of division of labour for productivity, the invisible hand of the market, natural price of things populated with the human motive of selfishness and being greedy. But such traits he thought must also include a measure of external positive self interest for survivable within the society. He is often thought of as the architect of the laissez faire economics and gamesmanship as in the prisoners dilemma later developed by John Nash which works only where there is a large seemingly free reward with little or no penalty to deceive and ‘win’ over the other party. This philosophy came to fruition from cold war ‘gamesmanship’ that fed into the philosophical management of the ‘cold war’ and ‘mad’. But when tested on ‘normal people’ the plot did not work, in each case of testing, participants unknowingly agreed to trust the other and work together to gain an aim. The psychotic plotting that gives rise to game theory may only apply to strange created scenarios, applicable to a self selected pre obsessed number of people and not to the majority of normal people interactions so possibly undermining smith’s selfishness and greed beliefs. He is now celebrated on the English £20 note, so we know which way G. Brown dresses.
John M Keynes 1843/1943
A British economist who developed the interventionist idea of economics later called Keynesian economics, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recession and depression boom to bust cycles. His work led to macroeconomics and countered the idea that free open market led to the best outcome for all and did not guaranteed full employment as laid out in his General Theory of Employment, Interest & Money. His argument, of prices and wages as perfectly flexible terms established that the interaction of aggregate demand and aggregate supply may lead to stable unemployment equilibria. His work on employment went against the idea that the market ultimately settles at a state of full employment - a central tenet of classical economists. Instead he argued that there exists a variety of economic states, a full employment equilibrium position being just one of them. In a state of high unemployment and unused production capacity, one can enhance employment & total income by increasing expenditure for consumption or investment i.e. intervention in the market condition to direct a change in the market condition. A process that has been tried effectively after the last war by the usa and gb. GB had to nationalise major industries after the war to get them productive and the USA invested billions in the space and defense program to avoid recession.
Fredrich A V Hayek 1899/1992
Austrian- British, he came to prominence circa 1935. And was much admired by M. Thatcher but he stressed he was not a conservative follower. He was a great critic of collectivism or socialism which he said led to totalitarian states as central powers would ultimately impact on social life as well, this was all laid out in his ‘The Road to Serfdom’ 1944 and he maintained that the role of state should be to uphold law with as little interference a possible in it for the market and individual to operate in; yet to enforce such order as society required that it had created by the unplanned spontaneous order, generated to create markets. For Hayek maintained that not only is society a complex phenomenon, it is therefore quite unlike the simple models studied in the physical sciences, but that each individual making up that complex structure is himself complex and impossible to predict with any accuracy. The problem for any planner of a system be it economic or social order, is that the 'facts' the planner must deal with in order to plan an outcome are not concrete things, but are the relationships and behaviour of individuals themselves, something which nobody can predict in advance. Being scientific in markets is a poor basis for any social 'science' while we might be able to talk about some general patterns of society, “we should never suppose that we can completely predict it.” Hayek viewed the free price system, not as a conscious invention something which is intentionally designed by man, but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Yet he supported the idea that state should be organised around a market order where price sets the pace of change and distribution of resources. All of which sounds just like MT conservative’s right wing policies and her “no such thing as society” and of individualism at all cost but pay your own way, plus selling of state assets which has proved t0 be an expensive mistake.
Milton Friedman 1912/2006
He was a prominent American economist and public intellectual. Friedman was the arch monetarist and promoter of lasisez faire economies which should be free from all state restraints. In his 1962 book Capitalism and Freedom, Friedman advocated practically emasculating the role of government in a free market as a means of creating political and social freedom. He maintained that there is a close and stable link between inflation and the money supply that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy. Friedman was supportive of the state provision of some public goods that the market is not seen as being able to provide. However, he thought that the scope of such goods as being minimal. And, he argues that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly where private competition is prohibited. (Hence the privatisation of state asset by Conservative and Labour) Friedman also proposed a negative income tax to replace the existing welfare system (something labour G, Brown has moved to due) and then opposing a bill to implement it in the USA because it merely supplemented the existing system rather than replaced it. He also suggested having a voucher of substantial size available to all students, and free of excessive regulations. His idea was that vouchers would allow private schools to compete with the public school monopoly. Something that was considered with UK state social support and again an idea that has unintentional damaging consequences when looking at the UK schooling in public vs. private vs. academy vs. parental choice in education. Those with best resources will choose the best, overwhelming availability and leaving the majority least able to deterioration.
Taking the views of the above people; which have been of necessity condensed and which have been instrumental in driving some of the thinking in economics, they and others unnamed belong to a long line of people that have attempted to understand the working of a country’s economy and have laboured to position economics on a quasi scientific footing, one that it does not by any stretch of imagination or perverted logic deserve. This dutiful acceptance in the faith that economics and the law of markets can be interpreted as a science fact has moved politics to step aside from the role that it should undertake to act for the best interest of its entire people. That the economy is now determined by the active promotion of lasisez faire promulgated policies and effectively supported by the states abrogating its interventionist responsibility in the total belief that the market is supreme and that it is ultimately self regulating to respond to the needs of the many by ‘trickle down economics’, is simply a way of letting the devil rip. It is a no win race. As has been demonstrated by a number of assessments the rich have got richer and the poor poorer and they pay a higher portion of tax take.
All countries and their economies have since trading and economic inception had the actual, practical and tacit intervention of the power of the state fundamentally to benefit the few and utilise the energy of the many for it existence. The substance of the existing wealth of nations did not derive from any grand understanding or insight into all market mechanisms, it did not come about from some fortuitously placed ‘manna’ eagerly sort by all; it did not get to the pinnacle it now occupies by governmental power being lasisez faire. Its foundation can only be laid in the early exploitation of others leading to the mechanisation, productive capacity and keeping ahead of the consumptive requirements that can last as long as there is sufficient disposable capital to invest and acquire all that is not generated internally. It did all this in an unsophisticated organic way using a variety of the element that composed different ‘economic models’ that now pervade the ‘science’ of economics
The science of economics may be seen to be flawed in that it relies on historical data to show trends upon which economic facts are laid and best guesses made to model future progress. It does not generally allow consideration for insubstantial factors that impact the market assessments so there is:-
No room for honour or trust or altruistic motives.
No recognition of the mind of society acting in a possibly uncoordinated yet constructive accord.
No use of emotive drives in the pursuit of purpose.
Neither active popular social vision nor one pursued by state.
No economic entropy calculation.
No sense of good nationhood of the majority for the lifting of the minority.
Such a narrow self centred view of economics may be detrimental to a society. The solution to the ultimate degradation of society caused by the blind belief in market forces is to redefine the market for what it should be for. The market is not a fixed scientific structure, it is not perfect in operation, it does not always serve the best need of the majority, and it ultimately relies on the aggregate effort and energy of the majority for it to operate. Where it may seem to serve the needs of the majority it is therefore only useful for as long as it forefills and is allowed to fore fill the indeterminate aspiration of the population and is not perverted by hugh inequalities. In this the market has to share the true cost of its acquisition, creation, beneficial effects and replacement so that none are disadvantaged from the pursuit of the sustaining consumables acquired freely within the constraint of good laws. This means that the legitimacy of the state is acting with the authority of the people freely given by some form of notable consensus and is crucial to the operating of an economy so long as it is fair. As it stands just now there is certain hollowness to the power of economies that take the strength of economics as its own justification portrayed by the obvious power and wealth of nations. This power and wealth is evident with the built assets and financial resources they have at their disposal but undermined by the increasing deviant nature of it in which sees financial rewards outstrip the effort required to accumulate it by a small section of a population. If one looks at the underlying pillars of their power one can see that there is a huge segment that do not and will not have a share in the wealth of the nation and increasing find it difficult to acquire any individual wealth to play a part in it. As lasisez faire economic tend to gravitate their resource to those that already have economic power, this divergence will become worse, therein is the manure for the seed to grow in
Economics is not a science and is open to the vagaries of humans’ opportunistic or ethical tendencies. Take the pronouncements of the notable expert on the subject, using their expert opinions it can be argued that despite the abhorrence now vocalised in the excised slave trade, that it was a great justification for the wealth it created for Great Britain, the development of United States and Europe. The application of the developed element of economics from its market forces idea, division of labour, monetarism, supply and demand etc were all factors in the accepted ‘science’ of economics but all ignoring the driving factor of cheap disposable labour. Not much in the way of strong words is evident against one of the prime supporting principle elements of economics, the pliability, availability and cost of labour. The salve trade was an immensely good thing economically for a few people of controlling influences but diabolical in its effect yet no one of substance at the time the science of economic was being thought up raises any strong objection to it or indeed used it as a major building block of their later economic principles. But bear in mind that at the same time the slave trade was operating, in the UK most of its population had no say in the prosecution of the slave trade and as a result of the enclosures acts of 1750-1860 and the much earlier Fruits of the Forest act, many were substantially impoverished being deprived of access to the fruits of the land and many were forced to subjection and fed into the nascent industrial revolution, were they laboured in servitude; a small step up from being a slave. They had no vote, no power, and no resources but were industriously not called slaves, which they were, this is yet a fine distinction that some vigilant reader may object to. Such subjection may have only been mitigated in the fact that they were white, probably Christian / Protestant and indigenous. This use of such a disposable resource made the economics of the wealth generation very profitable.
There can be no freedom of a market economy if one party is subservient to the other by the lack of negotiating power. The accepted economy model and the trading of goods and commodities assumes that both participants benefit from a transaction and the price mechanism signals the level at which a transaction occurs using the fiend off supply and demand so: no demand = no supply = no qualified price, low demand = low supply = moderated price, high demand but low supply = high price. High price simulates supply to extract maximum monetary value eventually leading to supply meeting or exceeding demand and falling price. Some of this depend on the utilitarian value of the commodity and its rarity, manipulation, scarcity and need / perceptive desirability which may change over time or with enforced logistical, social environ pressures. The price mechanism assumes that the real value of a thing being traded is fully covered when in actual fact the purpose is to extort as much benefit from the transaction, more than it is taken in energy and ‘added value’ to acquire, so generating profit. Economist would consistently argue that this element of profit as measured or defined by both parties is derived by both the acquirer and seller however I suggest this only applies where both parties can afford the transaction and continue to develop their acquisition streams, process, deliver and reward, yet in effect one party must eventually be diminished as the resource is consumed and the ability to afford to meet the continuing transaction model is restricted.
As may be seen today, although China and India are the recipients of massive investment from western multination interests attempting to serve their own shareholders best needs by seemingly exploiting the advantages of these countries resources, primarily their manpower or increasingly their imported technical ability and growing their indigenous consumption; the long term effect of this is to eventually undermine their own corporate existence and the economic standing of their own home countries. For in moving out technical ability and investment reduces the internal productive capacity and the ability to earn ‘foreign’ income, in this there must be a slow impoverishment of the disposable resource of the population which reduces the living standards of those county that rely on exports or foreign earnings to afford to buy the imports that are required to maintain them. The initial short term approach to meet this threat is to manipulate interest rates or lower taxes, hoping to stimulate growth and consumer expenditure, reducing state expenditure ‘sweat’ the infrastructure assets and later eventually move to the operation of a command type economy to survive. To some extent this is happening now as there is a chase in the west to be the best friendly face of capitalism by pressing back governmental intervention in economic control and ease the tax ‘burden’ on companies together with a desire to reduce direct personal taxation in favour of indirect disposable income taxation. These steps are matched with increasing difficulty being experienced in the command management of WTO/GATT.
These fiscal steps may boost or maintain economic growth in the medium term but with the reduce capacity to invest in home wealth whilst allowing the economic generating capacity to flow out to the newly rapacious expanding companies in countries that do not (as yet ) carry social infrastructure cost, or may never have to carry it, is not a equal competitive state to be in. The west must eventually lose its superiority if it does not see the need to move beyond the formative state of laissez fair economics and realise that the success of a nation and its wealth relies on moving with the pulse of human endeavours yet create and influence an aspiration for its population to be inclusive in the wealth it has but perhaps devise a different economic supervision.
So the road to Nirvana might be paved with the economic monetary gold but it is set in the uncertainly and unpredictability of narrow human values and vision. The apparent immutability of the market economy and its promiscuous success is not guaranteed to continue. Once the ability to offer something that others want is exhausted or reduced or indeed the ability to pay for desired commodity is constricted, the conditions on which a market can operate become stagnant. At the moment there is a slow out flowing of resources into the ‘developing’ markets that is pursuing productivity and raw commodities for consumables and energy, what is driving this is the continuing demand for high corporate profit sustainability and to feed the demands of the major consumer market; the west. This is fundamentally exploiting the lack of social and environmental infrastructure and using high expendable labour content of the supplying nations.
However no free modern economic culture can survive without repercussions when 35% of its population are clearly disfranchised from participating in the foundation of its social economic structure. As stated before, assume that the world achieves unanimity of economy where a plateau of economic trading is stabilised i.e. as in a closed system, how does the economics of today survive? It can perhaps only go one of two ways, a collapse to a form of controlled chaos or become a wholly managed system of production and distribution. As so far all the accomplishment attached to economic models and the success of the wealth of nations has relied on expansion and exploitation of available resources at a cost that has been beneficial to the users, when the bounty founders with no expansion, what other alternative is there? The probable economic entropy for Europe and the USA is not a survivable option if laissez faire is the sole determinant of current driving economic models.
1.5.07
© Renot 2007
posted by Renot at 12:12 am
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